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Developing an Insurance-Coverage Roadmap

Developing an Insurance-Coverage Roadmap Requires Careful, Multi-Factor Analysis

By Michael H. Sampson

Partner; Cannabis Industry Practice Group Co-Lead; Insurance Coverage Practice Group Lead 

Leech Tishman Fuscaldo & Lampl, LLC 

If a cannabis-related business wants to be safe and to succeed – and, really, what business does not? –  it must, at a minimum, ensure that it has obtained and maintains the “right” commercial insurance coverages.  

How, though, does a prudent business determine what coverages are actually required, or even what coverages are advisable?  

Reviewing and understanding applicable law, relevant agreements, and one’s own operations can go a long way to developing a comprehensive roadmap to coverage and, hopefully, to safety and success. 

At the outset, a cannabis-related business can and should carefully review applicable state laws, regulations, and rules to determine if a specific type(s) or amount(s) of insurance is required in the jurisdiction(s) in which it operates.  

Massachusetts, for example, requires at least that “[a] Marijuana Establishment … obtain and maintain general liability insurance coverage for no less than $1,000,000 per occurrence and $2,000,000 in aggregate, annually, and product liability insurance coverage for no less than $1,000,000 per occurrence and $2,000,000 in aggregate, annually, except as [otherwise] provided [or] approved ….”  That state even mandates that the “deductible for each policy … be no higher than $5,000 per occurrence.”

Although less demanding, Michigan also, for example, requires that “a renewal applicant or licensee holding a license under the medical marihuana facilities licensing act shall [among other requirements] carry commercial general liability insurance covering premises liability for an amount not less than $100,000.00.”  

By way of another example, Pennsylvania sets forth its own amorphous requirements:  “A medical marijuana organization shall obtain and maintain an appropriate amount of insurance coverage that insures the site and facility and equipment used in the operation of the facility.  An adequate amount of comprehensive liability insurance covering the medical marijuana organization’s activities” is also required “for as long as the medical marijuana organization is operating ….”  That state, for example, also requires that “[a] medical marijuana organization shall obtain and maintain workers’ compensation insurance coverage for employees at the time the medical marijuana organization is determined to be operational ….”

Other states may have still other requirements.  Experienced insurance-coverage counsel and/or an attorney(s) familiar with the cannabis industry and the attendant regulations can assist a business with identifying, reviewing, and understanding any applicable requirements, which can be buried deep in state laws, regulations, or rules.

Additionally, to help determine what coverages it needs, a cannabis-related business – working closely with experienced, sophisticated “in-house” or “outside” counsel – should consider any insurance (or related) requirements included in leases, contracts, or other agreements to which the business is a party.  

A lease, for example, could require that a tenant (or a landlord, for that matter) obtain and maintain property insurance – and could even specify, for instance, whether extra coverage for floods or earthquakes is necessary.  

Similarly, a supplier or vendor agreement, for example, could require that a business procure product-liability insurance – and could even specify, for instance, that a third-party be added as an “additional insured” on such an insurance policy.  

Further still, a cannabis-related business also should carefully consider the nature and scope of its operations and thoughtfully assess its own risks and potential liabilities.  For example:  Does the business “touch the plant”?  Does it manufacture or sell a product?  Does it manage another entity’s business or render what could be considered “professional services”?  Does it own a building?  Does it allow the public to enter its facility?  Does it use an automobile(s) to deliver its products or services?  Does it have directors and officers, and/or does it employ pharmacists and/or others?  And so on.

Understanding the risks and liabilities potentially associated with one’s own operations make it easier for a business to determine what coverages it should obtain and maintain (and, also to help avoid potential pitfalls that can be lurking in insurance policies – especially in exclusions to coverage). 

For example, if a business manufactures or sells a product, it almost certainly will need product-liability insurance.  And, if it employs anyone, it will almost certainly need workers’ compensation insurance, and may also want to consider employment practices liability insurance. 

Affirmative answers to other of the inquiries above – for example, yes, a business manages another business, owns commercial property, uses company vehicles in its day operations, and/or has directors/officers – may lead it to purchase and/or maintain still other coverages, such as professional liability, property, commercial automobile, and/or directors and officers’ insurance.

Only by engaging in this type of thoughtful, multi-factor analysis – and working with sophisticated insurance-coverage counsel and insurance brokers, all of whom should be familiar and experienced with the cannabis industry specifically – can a cannabis-related business even begin to understand what coverages are in fact required and/or advisable.

(Michael H. Sampson regularly advises cannabis-related business on a myriad of insurance-coverage, risk-management, and other legal topics.  For example, he routinely counsels clients on regulatory requirements, helps them identify potential risks and liabilities, reviews specimen insurance policy forms, and works with policyholders and their insurance brokers to help place and/or renew insurance coverage.  Mike can be reached at 412-261-1600 or at msampson@leechtishman.com.). 

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